Some people think that wealth is relative to the person's financial well-being, however, wealth is not determined by how many "things" you have, but rather, how well you can provide for your family and how long you can provide for your family without any income. There are a lot of formulas out there to try and help you figure out where you should be financially right now based on your age and income level. I read the book, "The Millionaire Next Door", and they have a great simple formula to help you calculate where you stand right now in your life with your wealth. By using this formula, it will help you to see if you need to start saving more money, or if you are right on track for becoming wealthy. To calculate your wealth right now, multiply your age by your realized pretax annual household income from all
sources (except for inheritance) and divide this number by ten. Here is what the formula looks like: (AGE)(ANNUAL PRETAX INCOME)/(10) = your net worth So start off, we want to put our age into the "AGE" section of the formula. We are going to use a guy named John for our example. John is a 41 year old male who makes $143,000 a year, and has some investments that return him another $12,000 a year. So, we would start off our formula like this: (41)(ANNUAL PRETAX INCOME)/(10) = your net worth We know that John makes $155,000 a year total, so now we plug that into the formula here: (41)($155,000)/(10) = your net worth Now we mulptiple the age and income first, then divide by 10: $6,355,000/(10) = $635,500 So John should be worth $635,500 at age 41 if he has been saving his money correctly, and not overspending. Try this formula and see where you stand given your age and income.
